Co-Developing Sustainability Requirements: Exploring client and municipal perspectives in housing development

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Co-Developing Sustainability Requirements

Exploring client and municipal perspectives in housing development

MELISSA CANDEL

Licentiate Thesis in Real Estate and Construction Management KTH Royal Institute of Technology

School of Architecture and the Built Environment Stockholm, Sweden 2020

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KTH Royal Institute of Technology

School of Architecture and the Built Environment

Department of Real Estate and Construction Management Division of Construction and Facilities Management SE-100 44 Stockholm

TRITA-ABE-DLT-2015 ISBN 978-91-7873-534-1

Printed by: Universitetsservice US-AB, Sweden 2020

Academic Dissertation which, with due permission of the KTH Royal Institute of Technology, is submitted for public defence for the Degree of Licentiate of Philosophy on Wednesday the 10th June 2020, at 1:00 p.m. at KTH, Teknikringen 10B, Stockholm.

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Abstract

Construction has major environmental, social and economic impacts. Improving sustainability both during and after the construction process is widely discussed among a slew of practitioners, governments and researchers. Construction clients, such as housing developers, are considered key actors for change and innovation because of their position to set requirements when procuring construction projects. The process of developing project requirements has therefore mainly been studied during the construction clients’ procurement process. At the same time, municipalities use their position as land owners to drive sustainable development. Land allocation agreements allow municipalities to set project-specific sustainability requirements for construction projects on municipal land. The purpose of this thesis is to explore how municipal sustainability requirements affect housing developers when planning and designing their projects.

The research is based on a single empirical case study of an urban development programme comprising multiple parallel and sequential housing construction projects.

In this study, the municipality’s and housing developers’ perspectives are explored. The results demonstrate that the housing developers perceive several barriers to implementing municipal sustainability requirements. The three main barriers that were identified are reduced flexibility coupled with uncertainty, conflicting interests coupled with reduced autonomy and interdependencies, and a lack of trust and transparency coupled with interdependencies. The municipal sustainability requirements are initially developed by the municipality for the land allocation agreement. They are then co- developed further by the municipality and the housing developers together through negotiations before being finalised in conjunction with the developers’ procurement process.

The study is focused on the period following the housing developers’ signing of land allocation agreements with the municipality and before starting their procurement process. During this period, the housing developers attempt to negotiate municipal sustainability requirements that they anticipate will increase costs, risk and uncertainty and decrease the value of their final product. Negotiations between the housing developers and the municipality can be viewed as value co-creation processes stimulated by functional conflict. These findings build on three papers that are included in the thesis.

Contributions are made to literature on the role of construction clients and their perceived barriers to implementing and developing sustainable construction solutions and practices and barriers to change in general. Theoretical contributions are also made to literature on value co-creation in construction by illustrating how clients engage in

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the co-creation of value with municipalities and other clients. Finally, the theoretical link between value co-creation and functional conflict is studied and developed.

Keywords: Sustainability requirements, housing developers, municipalities, land allocation, functional conflict, value co-creation

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Sammanfattning

Byggandet har stora miljömässiga, sociala och ekonomiska effekter. Hållbar utveckling både under och efter byggprocessen diskuteras bland representanter för industrin, politiker och forskare. Byggherrar, till exempel i rollen som bostadsutvecklare, anses vara viktiga aktörer för förändring och innovation på grund av deras position att ställa krav vid upphandling av byggprojekt. Processen för att utveckla projektkrav har därför huvudsakligen studerats under byggherrens upphandlingsprocess. Samtidigt använder kommuner sin position som markägare för att driva hållbar utveckling genom att utmana den privata sektorn. Markanvisningar gör det möjligt för kommunerna att ställa projektspecifika hållbarhetskrav för byggprojekt på kommunal mark. Syftet med denna studie är att undersöka hur kommunala hållbarhetskrav påverkar bostadsutvecklare när de planerar och utformar sina projekt.

Resultaten är baserade på en empirisk fallstudie av ett stadsutvecklingsprojekt innehållande flera parallella och sekventiella bostadsprojekt. I denna studie undersöks undersöks både kommunens och bostadsutvecklarnas perspektiv. Resultaten visar att bostadsutvecklarna uppfattar ett antal hinder för att genomföra kommunala hållbarhetskrav. De tre största hindren som identifierats är minskad flexibilitet i kombination med osäkerhet, intressekonflikter i kombination med minskad autonomi och beroende av andra aktörer och brist på förtroende och öppenhet i kombination med beroende av andra aktörer. De kommunala hållbarhetskraven utvecklas initialt av kommunen för markanvisningsavtalen. De utvecklas sedan vidare av kommunen och bostadsutvecklarna tillsammans genom förhandlingar. Slutligen konkretiseras de i samband med bostadsutvecklarnas upphandlingsprocess.

Studien fokuserar på perioden från att bostadsutvecklarna tecknat markanvisningsavtal med kommunen men innan deras upphandling av entreprenörer påbörjats. Under denna period försöker bostadsutvecklarna förhandla ner de kommunala hållbarhetskrav som de förutser kommer öka deras kostnader, risk och osäkerhet samt minska värdet på deras slutprodukt. Förhandlingarna mellan bostadsutvecklarna och kommunen kan ses som värdesamskapande processer drivna av funktionella konflikter.

Dessa resultat bygger på tre artiklar som ingår i avhandlingen.

Bidrag görs till litteraturen om byggherrens roll och dess upplevda hinder för att implementera och utveckla hållbara lösningar och praxis och hinder för förändring.

Teoretiska bidrag görs också till litteraturen om värdesamskapande inom bygg genom att illustrera hur byggherrar har värdesamskapande processer tillsammans med kommuner och andra byggherrar. Slutligen studeras och utvecklas den teoretiska kopplingen mellan värdesamskapande och funktionell konflikt.

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Acknowledgements

I have learnt and grown so much since starting my PhD in January 2018. This journey would not have been possible and I would not be where I am today without the support and guidance of some truly amazing people.

I want to start by thanking my main supervisor Tina Karrbom Gustavsson, who gave me this opportunity and made this research project possible. Thank you so much for all your support, encouragement, patience and advice and always challenging me to develop and improve! You are an incredible mentor, role model and inspiration to work with. I am very excited and beyond grateful to be continuing my work with you after this licentiate.

I would also like to express my gratitude and thanks to my two co-supervisors Per-Erik Eriksson and Abukar Warsame. Thank you both for sharing your knowledge and always providing exceptionally constructive and helpful feedback and input.

I also want to thank my co-workers at the Department of Real Estate and Construction Management and ProcSIBE for all your help, feedback and interesting discussions.

Special thanks to Peter Ekbäck for reviewing my work, Susanna Hedborg Bengtsson for your help in collecting and discussing empirical material and my other fellow PhD students; Lilly, Hannes, Olli, Jing, Jessica, Elise, Cynthia, Andreas, Gustaf, Anna- Therese, Agnes, Daniella and Emilia.

To all of the participants in my study, thank you for finding the time to share and discuss your experiences and reflections with me. Special thanks to Fredrik Bergman and the others from Stockholm municipality for giving me access to so much material and KTH, Formas and CBE for financing the research project.

Finally, I wish to thank my wonderful family for their endless support and love and my friends for making me laugh and dance and keeping me sane. A special shout out to David for proofreading all of my work, staying up late to listen to me ramble on about my research and keeping me calm when I have deadlines.

Melissa Candel Stockholm, April 2020

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List of appended papers

Paper A: Housing Developers’ Perceived Barriers to Implementing Municipal Sustainability Requirements

Candel, M. (2020) Working paper

An earlier version of this paper is peer-reviewed and published as a conference paper:

Candel, M. and Karrbom Gustavsson, T. (2019), Governed by Municipal Land Allocations: Implications for Housing Developers, 10th Nordic Conference on Construction Economics and Organization, 2019, Vol. 2, pp. 147 – 153.

Paper B: Beyond National Building Regulations: Exploring public- private negotiations over sustainability requirements

Candel, M., Karrbom Gustavsson, T. and Eriksson, P. E. (2019) Beyond National Building Regulations: Exploring Public-Private Negotiations Over Sustainability Requirements In: Gorse, C and Neilson, C J (Eds) Proceedings of the 35th Annual ARCOM Conference, 2-4 September 2019, Leeds, UK, Association of Researchers in Construction Management, 740-749.

The idea for the paper and the collection of empirical material were done by Candel. All of the authors helped to analyse the material. The paper was then written by Candel and edited by all three authors. This paper is peer-reviewed and published as a conference paper.

Paper C: Early Requirements Capture: A study of Value Co-Creation for Sustainability in Construction

Candel, M., Karrbom Gustavsson, T. and Eriksson, P-E. (2020)

Under review for possible publication in Construction Management and Economics This paper is developed from Paper B.

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List of figures and tables

Figure 1: The research process 18

Figure 2: The process of co-developing sustainability requirements during

construction and land development processes in Stage X. 20

Table 1: Summary of interviews 21

Abbreviations

LA Land allocation

SC Sustainable construction SRS Stockholm Royal Seaport

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INTRODUCTION | 1

1. Introduction

1.1. Background

The challenge of improving sustainability in the built environment is currently high on the agenda for both practitioners and academics. The construction industry is one of the main contributors to environmental degradation and the depletion of natural resources.

Construction activities are a major source of pollution and waste and buildings account for a large percentage of the world’s energy consumption (UNEP, 2017; Darko, et al., 2017; Loosemore and Perry, 2019). On the other hand, construction can have major social and economic benefits for society (Darko, et al., 2017). Sustainability in urban development and construction is often tackled by introducing new government regulations, although for cities in developed countries change generated by new regulations is slow (van der Heijden, 2014; 2). Slow progress and rapid urbanisation in cities has led many local authorities to address sustainability in urban development.

Municipalities are important actors with many possibilities to initiate and govern a sustainable transition (Holm, et al., 2011), although previous research also raises doubts of their capacity to lead change (Smedby, 2016; Tambach and Visscher, 2012).

Nevertheless, local authorities govern sustainability in urban development in a variety of ways. Many municipalities find that their positions as land owners provide alternatives for governing construction projects (Smedby and Quitzau, 2016). Land ownership enables municipalities to regulate local development and stimulate sustainable innovation by setting sustainability requirements on housing developers’

construction projects that exceed current legislation (Caesar, 2016; Smedby and Quitzau, 2016; Smedby 2016).

Construction clients, such as housing developers, have on the other hand been considered key actors for change and innovation within the construction management literature for over two decades (e.g. Nam and Tatum, 1997; Kulatunga, 2011;

Loosemore, 2015; Havenvid, et al., 2016). Much research has explored the construction client’s role because of their position to formulate specifications and requirements when procuring construction projects (Hartmann, et al., 2008; Havenvid, et al., 2016).

Introducing novel requirements is considered one of the main ways in which construction clients can stimulate innovation (Blayse and Manley, 2004; Havenvid, et al., 2016). Despite the power that construction clients have as a result of their position, they face numerous barriers to sustainable construction (SC) (Häkkinen and Belloni, 2011) and change in general (Vennström and Eriksson, 2010).

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2 | INTRODUCTION

1.2. Problem discussion

Previous literature in the construction management field often assumes that project requirements are developed and set by construction clients. The process of developing project requirements before they can be set in procurement contracts includes identifying them, negotiating them with project stakeholders and formulating them.

This process is typically studied during the client’s procurement process, and sometimes throughout later stages of the construction process as requirements can continue to emerge and change (e.g. Green, 1996; Othman, et al., 2004; Thomson, 2011). However, as a result of public governance, municipalities are involved in the process of developing project-specific requirements prior to the client’s procurement process in construction projects on municipal land. Municipalities use land allocation (LA) to govern construction projects and advance sustainable development, which has previously been explored in research on local sustainability governance (Bulkeley and Kern, 2006;

Smedby, 2016; Smedby and Quitzau, 2016).

LA refers to the practice of selling municipal land to developers (Caesar, 2016), which are construction clients that develop buildings on land that they procure. Irrespective of whether land is acquired through a municipality or in another way, projects are mainly implemented by private developers (ibid). In LA agreements municipalities are able to set requirements on the construction projects before construction procurement that go beyond the national building regulations (Caesar, 2016; Smedby and Quitzau 2016; Smedby, 2016). Sustainability requirements that are set in municipal LA agreements, which will from here on simply be referred to as municipal sustainability requirements, are not set in stone. Municipal requirements are subject to modifications until a development right has been finalized (Caesar, 2016). Developers are thereby able to negotiate modifications to, or the removal of, municipal sustainability requirements while they design their projects, conduct pre-studies and prepare for procurement.

Municipal requirements are thereby first developed by the municipality and set in the LA agreement, and then co-developed further by the municipality and developers together before construction procurement.

Municipal sustainability requirements challenge the private sector to innovate and adopt new sustainable solutions and practices. They also allow municipalities to develop requirements that can later be adopted as new policies and building regulations. As expectations of local sustainability governance increase it is likely that municipalities will continue to utilize their position as land owners to regulate and promote sustainability in the building sector, even if their ability to actually change mainstream construction practices is questioned (Smedby, 2016; Tambach and Visscher, 2012). As municipalities in Sweden increase their efforts to make urban development more sustainable with requirements in LA agreements, the implications this has for developers and their projects becomes a relevant point of inquiry.

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INTRODUCTION | 3

The land development process and the construction process are more entwined in practice than the construction management literature makes them out to be. Local sustainability governance literature explores public land development practices as a governance mechanism for driving sustainability in the construction of new buildings.

However, there appears to be a lack of research that takes the developers’ perspective to explore how these processes affect each other. One exception is a study by Olander and Landin (2008) where they investigate housing developers’ perceptions of the planning process in Sweden, which is mainly controlled by a municipality’s traditions rather than a common set of regulations. They found that housing developers perceive the planning process for the development of new housing to be uncertain, unfair and costly as a result of its long and uncertain time-scale (Olander and Landin, 2008). To understand early decisions made by developers, the social, political, economic and technical forces that shaped them must be considered (Cherns and Bryant, 1984). Municipal sustainability requirements will affect and shape these forces in different ways and must therefore be considered in order to understand developers’ early decision-making in construction projects on municipal land.

1.3. Research purpose

Municipalities use sustainability requirements in LA agreements as a form of public governance. As a result, an understanding of building conditions and desired building specifications and requirements begin to take shape prior to developers’ procurement processes.

The purpose of this research is to explore how municipal sustainability requirements affect housing developers when planning and designing their projects.

This thesis is based on a case study of one stage in an urban development programme.

The urban development programme is initiated and governed by Stockholm municipality. The residential apartment buildings constructed here are built by private housing developers that buy the land from the municipality. All twelve housing developers in this stage of the programme are building apartment buildings for private housing cooperatives. In this thesis, the term ‘housing developer’ is used to refer to a

‘construction client’ that builds residential buildings to sell.

The municipality is able to govern the construction projects and place high requirements on sustainability that necessitate innovation through LA agreements.

During the early planning phases of the construction projects some of these requirements are challenged by the housing developers and negotiated. The study is carried out during the early phases of the construction projects, after a LA agreement has been signed and before construction procurement commences. The implementation and development of municipal sustainability requirements is studied from both the

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4 | INTRODUCTION

housing developers’ and municipality’s perspectives. The unit of analysis is the interactions and relations between these organisational actors and their impacts on the construction process. All three pillars of sustainability (social, environmental and economic) are considered, although the focus here is on what the practitioners in this particular case deem to be related to sustainability. In other words, I have let the practitioners that are studied define what aspects of their work relate to sustainability.

The first part of the study explores how municipal sustainability requirements are used to govern construction projects and the implications of this from the housing developers’ perspective. Here the scope of inquiry does not extend to the developers’

project managers’ interpretation of their entire project context, but is limited to those aspects that directly related to sustainability requirements. The second and third parts of the study explore the process of co-developing municipal sustainability requirements further through negotiations between the municipality and housing developers.

1.4. Thesis outline

The thesis starts with an introductory chapter that presents the background, problem and research purpose. The introduction is followed by an overview of previous research on construction clients, the process of developing project requirements, clients’

perceived barriers to SC and innovation in large and complex projects and programmes.

This section provides a frame of reference for the study and a more extensive description of the empirical context. After the previous research, theoretical concepts and frameworks used to understand and analyse the case are introduced. The research methodology is then presented in the following chapter where methodological choices are explained, alongside their justifications, and the research process is described. This is followed by a summary of the appended papers. A discussion based on the results from the appended papers is then presented in the next chapter. The thesis is concluded with a discussion on theoretical contributions, practical and policy implications and suggestions for future research.

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PREVIOUS RESEARCH | 5

2. Previous research

2.1. The role of construction clients

Development is generally considered to be a complex and risky business (Brown, 2015).

The construction industry is project-based with a typically narrow focus on the individual project, and uncertainty and interdependencies between actors makes each construction project a highly complex endeavour (Dubois and Gadde, 2002a).

Construction projects are hierarchically structured temporary organizations, with the purpose of completing a specific task within a specified time and budget. They are embedded in the more permanent network that is the construction industry, which is generally considered a decentralized, fragmented and loosely coupled system with weak structures for learning between actors and projects (ibid).

While Dubois and Gadde (2002a) argue that each construction project is unique and has neither a history nor a future, others argue that historical and institutional contexts are crucial for understanding projects (Engwall, 2003; Kadefors, 1995). Engwall, (2003) and Kadefors (1995) also argue that construction projects are less unique than most of the literature will have us believe since there are many standard practices and routines, norms and traditions found in the construction industry. Kadefors (1995) presents several reasons why the construction industry is so heavily institutionalized, such as coordinating between actors, handling uncertainty and increasing efficiency. These institutions are also part of the reason the construction industry is generally considered conservative and opposed to change (ibid).

However, previous literature considers construction clients to be in a key position to stimulate innovation and drive change (e.g. Nam and Tatum, 1997; Kulatunga, 2011;

Loosemore, 2015). They are “the reason that the [construction] industry exists” (Boyd and Chinyio, 2006; 1) since they finance and initiate construction projects. In the Swedish Planning and Building Act (SFS 2010:900) construction clients are defined as:

“The one who carries out or assigns others to carry out design, construction, demolition or groundworks for their own account”. Construction clients, which include both public and private organisations, can be categorised according to their main purpose for taking on a construction project. Developers are construction clients that build to sell while long-term clients construct buildings that they intend to own. This thesis is specifically focused on housing developers, which denotes construction clients that finance and develop residential buildings to sell to private housing cooperatives. The term ‘client’

will from here on refer to construction clients in a more general sense when the type of client is not explicitly defined as a housing developer.

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6 | PREVIOUS RESEARCH

Clients consider their most important responsibilities to be planning, designing, financing, implementing and defining their projects (Kometa, et al., 1995). They govern construction projects through procurement by formulating project specifications and requirements (Eriksson, 2008; Hartmann, et al., 2008; Havenvid, et al., 2016).

Procurement is central in clients’ governance of their construction projects (Eriksson, 2008). It also enables clients to incorporate sustainability requirements in their projects (Varnäs, et al., 2009; Petersen and Kadefors, 2016) and is considered to be crucial for improving sustainability beyond the individual organization in the whole supply chain (Meehan and Bryde, 2011).

Different actors in construction tend to follow logics that align with their interests (Kadefors, 1995). For clients this will generally be that of return on investment since their biggest concern appears to be ‘value for money’ (Boyd and Chinyio, 2006).

Construction procurement is thereby largely driven by cost. On the other hand, previous studies have found that client values go beyond the traditional measures of time, cost and quality (Aliakbarlou, et al., 2018). Aliakbarlou, et al. (2018; 1018) call for a shift in focus from “traditional result-oriented criteria to both result- and non-result-oriented criteria”. While discussions about clients typically refer to them as one unitary actor, it is important to keep in mind that they are organisations containing stakeholders that have different needs, previous experiences and ways of perceiving the construction process (Boyd and Chinyio, 2006). In order to understand the client’s role in construction projects, social, political, technical and economic forces in their organisation, as well as their historical context, must be considered (Cherns and Bryant, 1984).

2.2. Developing project requirements in construction

Developing and communicating project requirements is an important part of the construction client’s procurement process and is typically included or addressed as a part of the client’s briefing process during procurement (Othman, et al., 2004). A project brief is a formal document used to communicate the client’s needs and objectives and are considered important for achieving client satisfaction (ibid). Vennström (2008) found that clients struggle to formulate their requirements during the early phase of the construction project and thereby have a tendency to transfer much of this work to external consultants and project managers. Thomson (2011) found that client requirements can also continue to emerge throughout the construction project, typically as a result of conflicting viewpoints among client stakeholders. Changing the project brief can negatively affect cost, time and quality, but Othman, et al. (2004; 257) found that it also “enabled client organisations [to] achieve their expectations and enhance the performance of their projects”. Karrbom Gustavsson and Hallin (2015) also argue that because clients’ understanding of the project and stakeholders’ goals and ambitions

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develop over time during the project, it is not possible to be completely informed at the front-end of projects.

Another aspect to consider here is the client organisations. They are not single unitary entities with common goals, interests and needs (Cherns and Bryant, 1984; Green, 1996;

Newcombe, 2003; Boyd and Chinyio, 2006). Since project objectives develop and change over time Green (1996) argues that it is important to seek a common understanding of them. Hellgren and Stjernberg (1995) describe the design process in major construction projects as a political process where negotiations take place between actors. They propose that the main objective of this process is to formulate visions that capture different interests.

The project management field is considered to lack knowledge on the ‘fuzzy’ front-end of projects (Edkins, et al., 2013). The front-end of construction projects tends to follow the same order “from feasibility studies, project definition, design, negotiation and pre- contract stages” leading up to procurement (Barlow, 2000; 974). Edkins, et al. (2013) define the front-end as the strategic shaping of the project with the possibility to put the project on hold or to cancel it completely. Edkins, et al. (2013; 82) claim that the front- end of projects “is where there is the greatest chance of errors and faults becoming built- in, or value being enhanced”. Kolltveit and Grønhaug (2004) also argue that for large and complex projects there is potential for increasing value during the execution of early phases where project uncertainty is high. They reason that uncertainty implies that there is both upside and downside risk.

2.3. Barriers to sustainable construction perceived by clients

Clients’ understanding of SC has been identified as a major barrier for its development (Häkkinen and Belloni, 2011). The development of SC is determined by clients’ demand for, and willingness to adopt, new SC solutions and practices (ibid). Developing and adopting new SC solutions and practices requires change. Construction clients’

perceived barriers to change can be divided into attitudinal, industrial and institutional barriers (Vennström and Eriksson, 2010). In their study, Vennström and Eriksson (2010) found that attitudinal and industrial barriers were the most critical barriers for clients to influence the construction process.

Attitudinal barriers include “short-term focus, adversarial attitudes, lack of ethics and morality and focus on projects instead of processes” (Vennström and Eriksson, 2010;

132). As a result of operating in a project-based industry, clients tend to have a short- term focus on costs and productivity, which hinders learning and innovation (Gann and Salter, 2000; Gann, 2001; Dubois and Gadde, 2002a; Häkkinen and Belloni, 2011).

Construction clients generally perceive innovation as risky and not profitable enough to implement in their projects (Ivory, 2005; Häkkinen and Belloni, 2011; Loosemore,

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2015), especially in large and complex projects (Davies, et al., 2014). Their fear of increased costs therefore constitutes a major barrier for SC (Williams and Dair, 2007;

Osmani and O'Reilly, 2009; Zainul Abidin, et al., 2013; Opoku and Ahmed, 2014; Shen, et al., 2017). In addition to this, previous literature identifies clients’ concerns regarding the reliability of new technologies as another major barrier for SC (Williams and Dair, 2007; Osmani and O’Reilly, 2009). Lastly, clients seem to lack a sense of urgency due to a lack of customer demand and regulations (Osmani and O'Reilly, 2009; Zainul Abidin, et al., 2013). Clients are however more likely to consider SC solutions for buildings that they plan to operate themselves, such as new offices, because they recognize long-term benefits like lower energy and maintenance costs (Zainul Abidin, et al., 2013).

Vennström and Eriksson (2010; 129) have defined industrial barriers as “external obstacles derived from the organization’s industrial environment”, such as competitive pressures. For construction clients, these include the “traditional organization of the construction process, conservative industry culture, industry structure and traditional production processes” (Vennström and Eriksson, 2010; 132). Established industry practices act as barriers to change in construction since deviations from them are strongly resisted (Kadefors, 1995). Construction projects are traditionally carried out by firms in temporary coalitions, which makes coordination between actors a major challenge (Barlow, 2000). Innovations in the construction industry are usually implemented in projects, as opposed to firms, and therefore typically involve complex negotiations with the other actors in the project (Winch, 1998; Harty, 2008).

A major industrial barrier for SC, specifically perceived by housing developers, is the way that risks and costs are distributed among actors. Previous studies question the extent of benefits for developers (e.g. Deng and Wu, 2014; Circo, 2008; van Bueren and Primeus, 2002). For example, it is difficult for developers to predict, and thereby profit from, lower long-term operational and maintenance costs for the end user (van Bueren and Primeus, 2002; Circo, 2008). Furthermore, they lack sufficient information on the costs of implementing different types of sustainable solutions since these can differ greatly between projects (Osmani and O'Reilly, 2009). Although savings accrued throughout a buildings life cycle might outweigh higher up-front costs during construction (Circo, 2008), developers are more concerned with development costs when making investment decisions (van Bueren and Primeus, 2002).

Developers perceive a lack of customer demand for sustainable buildings as a major barrier, since this means implementing SC will not increase the value of their final product (Häkkinen and Belloni, 2011; Zainul Abidin, et al., 2013). However, Osmani and O’Reilly (2009) found that this is not the case for developers operating in niche markets.

Zainul Abidin, et al. (2013) also found that a lack of technical skills and difficulties in procuring green products locally hinders developers from adopting new technologies

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from their local industry. Williams and Dair (2007) also found that developers are sometimes forced to prioritise between sustainability objectives since they are often in conflict with each other.

Institutions are socially constructed cultural rules. They “represent power relations and control systems” that shape the way people perceive and act within their environment (Kadefors, 1995; 399). Institutional barriers perceived by construction clients include government regulations, formal standardized contracts and traditional procurement systems (Vennström and Eriksson, 2010). Kadefors (1995) argues that the tendering system drives the standardization of tasks in construction because this allows clients to predict their costs based on previous projects and standard price lists. Häkkinen and Belloni (2011; 241) found that for SC it is a “lack of steering or the wrong type of steering”

that acts as a barrier. For example, clients perceive a lack of support and methods for creating objectives for SC and turning these objectives into requirements for procurement (ibid). Government policies and regulations are on the other hand often discussed as one of the main drivers and enablers for SC (Zainul Abidin, et al., 2013;

Olanipekun, et al., 2016).

2.4. Innovation in large and complex projects and programmes

According to Söderlund (2004) research on projects can be categorized along two dimensions. Research on projects either has a single- or multi-project focus, and either a single or multi-firm focus (ibid). The case presented in this study is of an urban development programme that contains multiple construction projects, which can be considered as a multi-firm and multi-project environment. This kind of research is generally interested in the “interrelationships between projects and their environments”

(Söderlund, 2004; 661). Pellegrinelli (1997; 142) defines a programme as a grouping of existing or new projects that “are managed in a coordinated way, either to achieve a common goal, or to extract benefits which would otherwise not be realised if they were managed independently”. In previous research, programmes are often considered as one large project, meaning they are seen as inter-firm project environments (Söderlund, 2004). For example, megaprojects can usually also be considered large, complex and expensive programmes (e.g. Davies, et al., 2014).

There is a growing stream of literature on innovation in large and complex projects and programmes. For example, Gil, et al. (2012) investigate the adoption of technology in large infrastructure projects. They conclude that the adoption of new technologies depends on assessments of predicted profitability and absorptive capacity, and that these decisions are the result of conflicts and negotiations. The absorptive capacity and expected profitability that each stakeholder has at the start of a project will also change throughout the project as a result of education and negotiations (Gil, et al., 2012; 462).

As a means of improving the possibilities for adopting a certain technology, those that

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advocate for its adoption attempt to educate the other actors (ibid). Gil, et al. (2012) also find that perceived risk, undeveloped standards and politics play a big role. In another study of London’s Crossrail project, Davies, et al. (2014) stress the benefits of innovation because innovation in large and complex projects is generally associated with increases costs and uncertainty, and is therefore avoided in most cases. They do however also call for research to address challenges associated with innovation in large and complex projects.

A common way to categorize innovations is to distinguish between product and process innovations (Hullova, et al., 2016). Product innovations are defined as “new products or services introduced to meet an external user or market need” and process innovations are “new elements introduced into an organization’s product or service operations… to produce a product or render a service” (Damanpour and Gopalakrishnan, 2001; 47-48).

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THEORETICAL CONCEPTS AND FRAMEWORKS | 11

3. Theoretical concepts and frameworks

3.1. Modes of governing change at the local level

In previous studies, Bulkeley and Kern’s (2006) modes of governing change at the local level are often referenced (see e.g. Smedby and Quitzau, 2016; Tambach and Visscher, 2012). These modes of governing include governing by authority, governing by provision, governing by enabling and self-governing (Bulkeley and Kern, 2006) and comprise a local authority’s capacity to facilitate change (Smedby and Quitzau, 2006).

Governing by authority refers to the use of regulations, requirements and sanctions (Bulkeley and Kern, 2006). Governing by enabling denotes local governments’ capacity to use argument, persuasion and incentives to encourage, facilitate and coordinate change (ibid). Lastly, governing by provision refers to resources and services that are provided in order to change practices (ibid). This typology is used here to investigate how the municipality governs the housing developers’ construction projects. The last mode of governing is disregarded since the municipality’s capacity to govern itself is not of interest. Smedby and Quitzau (2016) applied this typology to study municipalities and found that enabling modes of governing complement traditional modes of governing by authority because they create different types of incentives for developers and facilitate learning.

3.2. Value co-creation

Project management has traditionally used the iron triangle (cost, time and quality) to measure success, resulting in an output-focused research tradition. These rational and normative views on projects have received much criticism from the critical project management literature (Hodgson and Cicmil, 2006). In response, there have been several calls for research that re-conceptualises projects and programmes as value creation processes for multiple stakeholders (Winter and Szczepanek, 2008; Chang, et al., 2013). The concept of value co-creation stems from the service-dominant logic approach (Vargo and Lusch, 2004; Chang, et al., 2013; Smyth, et al., 2018). According to the service-dominant logic, value is created by “services rendered by the product and services together” (Liu, et al., 2014; 120).

In projects, value propositions are first co-created by stakeholders at the front-end through decisions, seen as events and processes, and value is not realized until after the project is completed (Smyth, et al., 2018). In large projects, the value that can be co- created and realised after the project’s completion is determined at the front-end (Smyth, et al., 2018). In the construction management literature, previous studies have

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12 | THEORETICAL CONCEPTS AND FRAMEWORKS

explored value co-creation processes between construction clients and upstream suppliers (e.g. Liu, et al., 2014; Eriksson, et al., 2016). Liu, et al., (2014) describe the project manager’s role in construction projects as attempting to capture and communicate the stakeholders’ continuously emerging understanding of what they want in order to develop feasible solutions, and plans for their implementation, that everyone can agree on (Liu, et al., 2014). Stakeholder management is considered important for construction clients to be able to resolve conflicts in their projects and co- create additional value (ibid).

Mills and Razmdoost (2016) argue that project relationships also have destructive characteristics and criticises previous studies in the field for only focusing on the positive characteristics of co-creation. Projects have been found to exhibit both value co-creation and value co-destruction (Mills and Razmdoost, 2016; Smyth, et al., 2018).

Value co-destruction can be the result of conflicts between project actors, although conflicts can be both functional and dysfunctional. There is however a general lack of theoretical development on the link between value co-creation and conflicts (Mele, 2011).

3.3. Conflict as a functional and dysfunctional phenomenon

Conflicts go through different stages. Pondy’s (1967) model of a ‘conflict episode’ has shaped the process perspective on conflicts into a dominant paradigm (Lewicki, et al., 1992). This classic model includes five stages; the latent conflict, the perceived conflict, the felt conflict, the manifest conflict and conflict aftermath (Pondy, 1967). Conflict is also a perceptual phenomenon, meaning “interpretations from both sides in the dyad”

are important (Vaaland and Håkansson, 2003; 137). Conflicts can also be considered as both a functional and dysfunctional phenomenon. They are typically perceived as problems that should be removed, but can also be considered “as a resource and tool for improvement” (Vaaland and Håkansson, 2003; 127). The concept of functional/constructive conflicts has been applied and developed in a number of different fields (e.g. Pondy, 1967, Deutsch, 1973; Gemünden, 1985; Pascale, 1990;

Vaaland and Håkansson, 2003).

In the context of projects, dysfunctional conflicts can increase costs and delays and have negative effects on business relationships (Vaaland and Håkansson, 2003). On the other hand, functional conflict in projects is seen as an important source of creativity and innovation which increases the value of business relationships (Vaaland and Håkansson, 2003; Mele, 2011). Mele (2011) found that constructive conflict resolution in projects strengthen relationships between stakeholders while destructive conflict resolution weakens them. Vaaland and Håkansson (2003) also found that inter- organizational conflicts that are connected to formal governance mechanisms in

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THEORETICAL CONCEPTS AND FRAMEWORKS | 13

complex projects are more likely to be dysfunctional, while conflicts that are connected to informal governance mechanisms are more likely to be functional.

Conflict can here be compared to the concept of power. Power can be considered as both an oppressive and productive force, in the sense that it produces the conditions for reproducing or changing social structures (Jørgensen and Philips, 2002). Concepts like conflict and power often have many negative connotations, but here they are considered as integral to all social processes. Furthermore, based on the ontological position that our assumptions about the world are often contradictory because these contradictions are inherent in the actual social structures that we study (Laclau and Bhaskar, 2010);

conflicts and negotiations could be considered as inherent aspects of projects.

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14 | THEORETICAL CONCEPTS AND FRAMEWORKS

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METHOD | 15

4. Method

4.1. Research questions

Three research questions were formulated based on the previous literature and theory.

These questions are designed to fulfil the research purpose to explore how municipal sustainability requirements affect housing developers when planning and designing their projects. The use of municipal sustainability requirements as a form of public governance over construction projects lacks any considerable recognition in the construction management literature. Since theory on its implications for housing developers’ construction process is nascent, it was not possible to predict what issues and themes would emerge. The research questions presented here are therefore mainly open-ended ‘how and why’ questions (Edmondson and McManus, 2007).

Previous research has found that housing developers perceive several attitudinal, industrial and institutional barriers to SC and change in general, which are presented in section 2.3.. However, it is uncertain how these barriers affect housing developers’

implementation of municipal sustainability requirements, as well as what other barriers they perceive to implementing them. This is addressed by the first research question.

RQ1: What barriers to implementing municipal sustainability requirements are perceived by housing developers?

To be able to answer RQ1, it is first necessary to form an understanding of how municipalities use LAs to govern construction projects. Bulkeley and Kern’s (2006) modes of governing change at the local level, presented in section 3.1., are applied as a theoretical framework for this purpose. The housing developers’ perceived barriers to implementing municipal sustainability requirements are then explored. A general grouping of identified barriers are presented in Paper A while papers B and C explore housing developers’ perceived challenges for specific municipal sustainability requirements. All three papers therefore address the first research question.

The first part of the study (Paper A) revealed that housing developers do not passively accept and implement the municipality’s project-specific sustainability requirements into their projects. In contrast they actively oppose certain requirements from LA agreements. The second research question addresses the type of requirements that housing developers attempt to change or remove through negotiations with the municipality and their reasoning behind this response.

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16 | METHOD

RQ2: How and why are project-specific sustainability requirements negotiated between municipalities and housing developers prior to procurement?

To answer RQ2, the requirements are examined in terms of their required innovation efforts. Product and process innovations (see section 2.4.) that housing developers believe will be necessary are investigated to gain an understanding of how these requirements stand out and why they are considered problematic enough to oppose.

This is presented in Paper B, along with a description of how two municipal sustainability requirements were negotiated and a discussion on how this process is connected to the procurement process.

A conceptualization of early requirement negotiations is proposed in the last part of the study. A process of co-developing requirements through negotiations takes place before procurement in construction projects with municipal sustainability requirements.

These negotiations arise as a result of conflicting interests. If these conflicts are functional (see section 3.3.), the joint effort to co-develop the project-specific sustainability requirements could be seen as a value co-creation process (see section 3.2.). The theoretical connection between these two concepts is addressed by the last research question.

RQ3: How do municipalities and housing developers co-create value through negotiations over project-specific sustainability requirements?

To answer RQ3, the two negotiations previously studied are analysed as value co- creation processes (Paper C).

4.2. Research design

A single case study of Stockholm Royal Seaport (hereafter called SRS) (described in section 4.3) is used to develop in-depth context-dependent knowledge (Flyvbjerg, 2006) to answer the research questions presented in the previous section. SRS could be considered as an extreme case in regards to the municipality’s extensive sustainability program. Each stage in the programme contains a different set of municipal sustainability requirements, which range from green outdoor spaces to new solutions for water and sewer systems. The housing developers also consider their projects in SRS to stand out because of the large number of high requirements on sustainability.

Extreme cases “activate more actors and more basic mechanisms” and are therefore suitable for generating a lot of information about a phenomenon and find the deeper rooted sources of problems (Flyvbjerg, 2006; 13). Single case studies are used to gain in-depth knowledge of their dynamics and demonstrate how constructs operate in social contexts (Dyer and Wilkins, 1991).

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METHOD | 17

My inquiry has largely been explorative and empirically driven. The focus throughout the collection of empirical material has been on developing an in-depth understanding of the case in question (Stake, 1995). As the research progressed it became evident that municipal sustainability requirements played a big part in shaping the housing developers’ projects. The municipal sustainability requirements could be considered integral to understanding the housing developers’ sustainability related work in SRS, but they are not addressed in the construction management literature. My interest in this topic could be said to be the result of unexpected findings which then led me to question assumptions found in the literature on the development of requirements (Edmondson and McManus 2007; 1162). Explorative research, where the researcher follow emerging themes and issues, is considered appropriate for topics where theory is nascent (Edmondson and McManus, 2007).

The overall research approach in this study was abductive. An abductive approach to case study research means that the “theoretical framework, empirical fieldwork, and case analysis evolve simultaneously” (Dubois and Gadde, 2002b; 554). By collecting and analysing empirical material iteratively the researcher remains flexible enough to pursue new lines of inquiry that emerge, and abandon less promising ones (Edmondson and McManus, 2007). This research approach is appropriate when the objective is to create new knowledge, as opposed to confirming existing theory, and is advocated for single case studies (Dubois and Gadde, 2002b), as well as for multiple case studies (Eisenhardt, 1989).

The case study can be broken down to three parts (Figure 1), each resulting in one of the appended papers. In the first part of the study (Paper A), the housing developers’

perceived barriers to implementing municipal sustainability requirements were explored. The ways in which municipal sustainability requirements are used to govern the construction projects in SRS were also investigated here. In the second part of the study (Paper B), negotiations over two municipal sustainability requirements were explored. The focus here was on investigating why the housing developers chose to oppose these two requirements and some early reflections are made on the implications these negotiations have on the housing developers’ procurement process. In the last part of the study (Paper C) these negotiations were then analysed using value co-creation and conflict theory and implications for literature on project requirements are developed further.

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18 | METHOD

Figure 1: The research process

4.3. Stockholm Royal Seaport

SRS is one of the largest ongoing urban development programmes in Europe. The construction of new residential buildings commenced in 2011 and around 12 000 new dwellings are planned to be built in the district by 2030 (Stockholm Stad, 2017). The programme was initiated and is governed by Stockholm municipality. The municipality’s ambition in SRS is to develop knowledge of sustainable practices and solutions for urban development and construction (Stockholm Stad, 2017). SRS was chosen as the empirical case due to the municipality’s high requirements on sustainability and their ambition to challenge the housing developers to develop new innovative solutions in order to drive the improvement of construction practices. The municipality uses LA agreements to place project-specific sustainability requirements

Case Study Stockholm Royal Seaport Case analysis

Part 1

Conference paper

2019

Paper A Housing Developers’

Perceived Barriers to Implementing

Municipal Sustainability Requirements

RQ 1

Paper B Beyond National

Building Regulations:

Exploring public- private negotiations over

sustainability requirements

RQ 1, 2

Paper C Early Requirements Capture: A study

of Value Co-Creation for Sustainability in

Construction RQ 1, 2, 3

Licentiate thesis Case analysis

Part 2

Case analysis Part 3

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METHOD | 19

on the housing developers’ construction projects. Previous research raises several political and ethical concerns regarding public land development practices (e.g.

Valtonen, et al., 2018), but this is not something that is addressed in the study presented here.

The district is located next to an international port near the city centre in an old industrial area. Working close to the ports operations with tight inner city building conditions creates several complexities for the construction processes. On the other hand, SRS is located in an attractive and sought after area of the city, giving the programme considerable publicity. The municipality is therefore able to put high prices on the land and use the programme to promote their vision for sustainability. Although the municipality is referred to as a unitary organisation there are notable differences in the perspectives of practitioners from different organisational units. The publicity and sustainable profile of SRS also allows the housing developers to use their projects to improve their corporate image.

In SRS the work is divided up into stages. Each stage consists of several construction projects carried out by public and private housing developers and infrastructure projects carried out by the municipality. Residential buildings are constructed next to each other with shared infrastructure, such as roads, and facilities, such as garages and courtyards, making the housing developers interdependent of each other. The specific stage that was studied (Stage X), which I consider to be my unit of observation, consists of twelve construction projects carried out by different private sector housing developers. These developers vary in size and experience and are all developing buildings that they intend to sell after completion, although some housing developers also carry out other types of construction projects. Two had little to no experience of building in Stockholm, while two had experience of building in Stockholm but not in SRS and the rest had experience from building in previous stages in SRS. Each stage also has its own set of sustainability requirements, compiled in a sustainability program.

The sustainability program for Stage X includes requirements on green outdoor spaces, energy, recycling systems, water and sewer systems, transport, environmental certifications, sustainable living and business and digital infrastructure (Stockholm Stad, 2015a).

Relationships between the actors in Stage X are complex and multi-dimensional. From the housing developers’ perspective, the municipality can be considered a supplier of developable land. However, the municipality also has a monopoly on planning in the city and owns a large portion of developable land, meaning they hold more power over the housing developers than in a typical buyer-supplier relationship. Relationships between housing developers are characterised both by their need to compete and collaborate, because they are building next to each other in tight inner-city conditions and have shared facilities.

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20 | METHOD

The case study took place after the housing developers had been allocated land and before development rights had been finalised and construction procurement could begin (Figure 2). During this time the housing developers and municipality work together in what has been described as an inter-dependency based relationship (Caesar, 2016). The housing developers are allocated land during the land development process, which typically precedes the construction process (Valtonen, et al., 2018). The municipality does this to gain the housing developers insight during the land development process, and to give them the opportunity to voice their concerns early on.

Figure 2: The process of co-developing sustainability requirements during construction and land development processes in Stage X.

Development right finalised Sign land

allocation agreement

Process of co-developing sustainability requirements Land development process carried out by the municipality

Construction process carried out by housing developers

Pre-studies & planning for each construction project

Procurement process for each construction project

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METHOD | 21

4.4. Collection of empirical material

4.4.1. Semi-structured Interviews

Empirical material was mainly gathered using semi-structured interviews. Interviews are suitable for gathering “rich, detailed, and evocative” material on phenomenon that has not been studied a lot before (Edmondson and McManus, 2007; 1162). Semi- structured interviews were conducted to ensure that a number of topics were covered while still allowing for flexibility to discuss new topics that emerged. Purposive sampling was used when selecting interviewees. Interviews were conducted with project managers from the housing developers in Stage X. In order to gain the municipality’s perspective, interviews with three programme managers from the City Planning office were also conducted. A sustainability strategist, a consultant and a contract lawyer from the municipality were interviewed as well because they were also involved in the process of developing requirements. The interviews were conducted between March 2018 and May 2019 and were all between 1 and 2 hours in duration.

Throughout the study I attempted to capture the project managers’ lived experiences by focusing the interviews on “praxis, on context-dependent judgement, on situational ethics and on reflexivity which enables social actors to see how power actually functions in context” (Cicmil, et al., 2006; 684). One interview guide was developed for the interviews with housing developers and another for the interviews with representatives from the municipality (see Appendix A). These interview guides were modified and adapted as the empirical fieldwork and case analysis progressed. Each interview was recorded, transcribed and coded differently in NVivo for each part of the study.

Table 1: Summary of interviews

No. Respondent Title Organisation Date

1 A Project manager Housing developer 2018-03-13

2 B Project manager Housing developer 2018-03-15

3 C Project manager Housing developer 2018-04-26

4 D Project manager Housing developer 2018-04-26

5 E Project manager Housing developer 2018-05-31

6 F Project manager Housing developer 2018-06-07

7 G and H Project manager Housing developer 2018-09-26

8 I Project manager Housing developer 2018-10-23

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9 J Project manager Housing developer 2018-10-25

10 K Project manager Municipality

(City Planning Office) 2018-11-01

11 L and M Sustainability strategist Municipal consultant

Municipality (Development Administration)

2018-12-03

12 N Project manager Municipality

13 O Contract lawyer Municipality 2019-03-19

14 P Project manager Municipality

15 Q

Project manager (involved in planning shared facilities between two housing developers)

Construction

consultant 2019-04-08

16 R Project manager Commercial building

developer 2019-05-03

17 S Project manager Housing developer 2019-05-09

18 K and N Project manager Municipality

4.4.2. Non-participant observations

Empirical material was also collected using non-participant observations from meetings, competence seminars and forums. Observations are also suitable for gathering “rich, detailed, and evocative” material on phenomenon that has not been studied a lot before (Edmondson and McManus 2007; 1162). The material consists of handwritten notes and is used to complement material gathered from the interviews.

The meetings, competence seminar and forum were all organized by the municipality for the housing developers. They provided good opportunities to see interactions between the housing developers and the municipality. The competence seminars were offered to the housing developers, as well as their architects and consultants when relevant, to help them develop knowledge about various SC practices and technologies.

The forums were offered to the housing developers following some of the competence seminars to help them meet suppliers for the various technologies that they would need.

Co-Developing Sustainability Requirements: Exploring client and municipal perspectives in housing development